October 12, 2002
Indian casino gaming: is it
a solution to Western New York's economic stagnation or just a bad bet?
by Cornelius Murray
Introduction
This document
identifies some of the issues that should be carefully considered by State
and local officials regarding the recent Tribal-State Compact entered into
by Governor Pataki and the Seneca Nation of Indians under the federal Indian
Gaming Regulatory Act (“IGRA”), which many think is a solution - or at least
a major part of one - to the declining economy of Western New York. There
are, however, a number of unresolved matters - aside from the current legal
challenges - that must break just right for the casinos to become a reality
and bring about the economic revitalization so many people are hoping for.
Issues
1. Will the
cities of Buffalo and Niagara Falls realize sufficient revenues from their
portion of the State’s revenue-sharing with the Tribe to pay for the costs
they will have to incur in providing services and hearing other burdens resulting
from the operation of the casinos?
2. Will the
Senecas have to pay any revenue at all to the State since tinder the Compact
they are relieved from such obligation if any other similar gambling competes
with their own, such as video lottery terminals which Buffalo Raceway is about
to install?
3. Will the U. S.
Department of the Interior give the necessary approval to a Compact containing
a revenue-sharing agreement calling for up to 25% of the proceeds to go to
the State when the Tribe does not enjoy the exclusive right to operate gaming
devices?
4. What is a “realistic”
time frame for the casinos to become operational if, as is likely the case,
the Governor and the Tribe are unable to expedite the federal review process
in light of the recent federal court decision denying the Senecas’ land claim
with respect to Grand Island?
Analysis
Point One: The
Revenue Projections Are Grossly Unrealistic and Actual Revenue May Well Be
Insufficient for the Cities of Buffalo and Niagara Falls to Cover the Costs
They Will Incur Related to Indian Casino Gaming
One of the Governor’s principal justifications
for Indian casino gaming, and, in particular, the Compact he recently executed
with the Seneca Nation of Indians, is that it will be a major revenue-generating
device for the State at a time when New York’s fiscal outlook is otherwise
particularly bleak. Under the terms of the Compact entered into with the
Senecas, in the first four years of operation the State is supposed to receive
18% of the net drop from the operation of “gaming devices” at the proposed
sites for casinos in both Niagara Falls and Buffalo. (See ¶ 12(b) at p. 15
of the Compact.) The Compact calls for the State to receive 22% in years
5-7, and the amount will increase to 25% in years 8-14. Id.
This also has implications for
the cities of Buffalo and Niagara Falls, because under the legislation
authorizing the Governor to enter into the Compact, municipal governments
hosting the facilities are to receive at least 25% of the revenue received
by the State. (See State Finance Law § 99-h, subd. 3, as added by
§ 3 of Part B of L. 2001, ch. 383.)
Seneca Nation officials are especially
optimistic; they are quoted in the August 23, 2002 edition of the Buffalo
News as saying that in the first year the City
of Niagara Falls will receive $10 million under this arrangement. The math, however, indicates that for
the City to realize this amount, the operation of gaming devices in the
first year would have to yield a total revenue of $222,222,222 (the City’s
share is one fourth of the State’s share of 18% or 4.5%. $10 million
is 4.5% of $222,222,222.) In turn, this means that the total amount wagered
would have to be at least $2.2 billion, assuming that the machines return
at least 90% to bettors. In Las Vegas, slots return closer to 98% to bettors,
in which case the total amount that would have to be bet at just the
Niagara Falls Casino would reach a staggering $11 billion in the first
year alone. This doesn’t even consider the fact that the Niagara Falls
casino will be competing with another brand new casino a short distance
away in Buffalo which will presumably have to achieve the same kind of
performance levels, if not better!
Niagara Falls’ Corporation Counsel
is quoted in the previously referred to Buffalo News article
as saying that he is not at all sure that the projected $10 million would
he sufficient to cover the City’s anticipated costs for additional services
and other burdens it must bear as a result of the operation of a casino.
As just indicated, however, it is no sure thing that the City will realize
anything close to the $10 million projected by Tribe officials. According
to the Buffalo News article, the Corporation Counsel is also apparently
assuming that he can negotiate a “richer” deal with the Senecas. That,
however, seems highly unlikely. Under the legislation passed last year,
the amount the City receives is subject to negotiation between the City
and the State. The Tribe has nothing to do with that, as Beth Kelly, a
Seneca spokeswoman, was quoted as saying in the Buffalo News
article. She’s right! The Senecas’ only obligation is to pay the
State the percentage called for in ¶ 12(b) of the Compact. This
was the intent of the State and the Tribe when it entered into the original
Memorandum of Understanding in June 2001. (See Page 3 of the Memorandum.
“Local Impact.”) Niagara Falls will have to look to the State Legislature
to get more than its 25% share of what the State is entitled
to receive under the Compact.
Worse yet, however, is the prospect
that neither the City nor the State will receive anything from the Tribes
with respect to the operation of their casinos. Any Tribal-State Compact
for Indian gaming must first be approved by the U.S. Secretary of the
Interior in accordance with IGRA “which prohibits the imposition of a
tax, fee, charge or other assessment upon an Indian tribe to engage in
a Class HI activity.” 25 U.S.C. § 2710(b)(3)(Cfl4). (See letter dated July 26.
2000 from the Department of the Interior addressed to the St. Regis Mohawk
Tribe with a copy to Governor Pataki.)
Point Two: The Senecas May Not Be Required To Share Any Revenues If They Must Compete With
Video Lottery Terminals at Buffalo Raceway
Even if a revenue-sharing
agreement, however, were otherwise acceptable, it would only be enforceable
by the State on the condition that the Tribe enjoyed exclusivity with
respect to the operation of gaming devices anywhere in the State west
of State Highway Route 14. (See
¶ 12(a) of the Compact). Any violation of such
exclusivity (someone else operating gaming devices in the State west
of Route 14) with respect to any category of gaming device would relieve
the Tribe of its obligations to pay the State any revenues from the
operation of devices of that same category. Under the Compact, there are
two categories of gaming devices: slot machines and video lottery games.
(See page 2 of the
Compact defining “Gaming Device.”) Thus, if the State were to operate
a video lottery game anywhere west of Route 14, the Tribe would he relieved
of its obligation to share any of the revenue it may
derive from its operation of such devices at its own casino.
In point of fact, the State may already be in breach of the Compact. In
the very same legislation that purported to give the Governor the authority
to enter into the compact with the Senecas, Chapter 383 of the Laws of
2001 the Legislature authorized the New York State Lottery to install
video lottery terminals (“VLTs”) at racetracks in several locations across
the State, provided the local county legislature approves. (See Tax Law § 1617-a,
as added by § 1 of Part C of Chapter 383 of the Laws of 2001.)
Erie County has already given its approval to the Buffalo Raceway to
install such devices at its track. As soon as the VLTs become operational
at Buffalo Raceway, however, the Tribe would be relieved of any obligation
to pay revenues from the operation of its video lottery gaming devices.
It is unclear how much of the revenues the Tribe expects to derive from
these gaming devices as opposed to slot machines (assuming for the sake
of argument that there is any real difference between “slot machines”
and VLTs), but it is certainly a question the City of Niagara Falls ought
to he asking.
Point Three: The Federal Government May
Not Issue The Necessary Approval For The Compact In Light Of Its Past Actions
With Respect To Proposed Revenue-Sharing Agreements
There is also
a serious question whether the Bureau of Indian Affairs within the U.S.
Department of the Interior would ever approve the Compact with the current
revenue-sharing provisions in it. Federal approval is, as previously stated,
a prerequisite to the effectiveness of any Tribal-State Compact under
IGRA. 25 U.S.C. § 2710(d)(3)(B).
As noted in a recent letter dated
November 21, 2001 the U.S. Secretary of the Interior for Indian Affairs
advised Gary Johnson, Governor of New Mexico, that of the
“more than 200 Tribal-State Compacts to date … only a few have called
for Tribal payments to states other than for direct expenses to defray
the costs of regulating gaming activity tinder the Compact.” The Department
noted that it would not approve compacts that failed to provide tribes
with substantial exclusivity with respect to Indian gaming, and that
the Interior Department “has a trust obligation to Indian tribes to ensure
that the benefit received by the State under the proposed Compact is
appropriate in light of the benefit conferred on the Tribe.”
In that particular letter, the
Interior Department did approve an 8% revenue-sharing agreement, carefully
noting, however, that this was not to be misconstrued as part of an earlier
Compact that called for a 16% revenue-sharing arrangement between an Indian
tribe and the State of New Mexico. Moreover, the Department went out
of its way in the letter to note that it is was unlikely that there would
he substantial competition from slot machines operating at any nearby
(within 100 miles) racetracks. By contrast, in the instant case, the
State’s “piece of the action” is well above 16% and Buffalo Raceway
will be installing video lottery terminals right in the casinos’ own
backyard.
It is obvious that the State
cannot have it both ways. If it wants both Indian casino gaming and video lottery terminals at racetracks, it cannot expect
any revenue from the operation of the video lottery terminals at Indian
casinos, because the Tribe’s obligation to pay is conditioned upon its
“exclusive” right to operate such devices. The State, therefore, may
have “shot itself in the proverbial foot” by authorizing both types of
gambling in the same bill - i.e., Indian gaming under Part B of Chapter
383 of the Laws of 2001, and video lottery terminals
at racetracks, under Part C.
Even more ominous is the July
26, 2000 rejection by the Bureau of Indian Affairs of a proposed 25% revenue-sharing
agreement that was presented to it for approval by Governor Pataki and
the St. Regis Mohawk Tribe. The Bureau noted that the operation by the
New York State Lottery of an electronic Keno game, known as “Quick Draw,”
should reduce, if not eliminate, any revenue sharing obligation that
tribe would otherwise have to the State. In particular, the Bureau, as
previously mentioned, noted a provision of IGRA, 25 U.S.C. §2710(d)(3)(C)(4),
which prohibits the imposition of any tax, fee, charge or other assessment
upon an Indian tribe to engage in a class III activity.
It is difficult to see how the
Bureau of Indian Affairs could approve a Compact that requires the tribe
to enter into a 25% revenue sharing agreement with the State when the
State continues to operate Quick Draw which would compete with the Senecas’
casinos. How does this case differ, if at
all, from the St. Regis Mohawk proposal that the Bureau rejected?
Point
Four: The Federal Review Process
May Not Receive Expedited Review But May Instead Be Subjected To A Lengthy
Review Process In Light Of A Recent Federal Court Decision Rejecting The
Senecas’ Land Claim for Grand Island
Another area of major concern for the cities of Buffalo and
Niagara Falls concerns the time frames within which all this gambling
is likely to occur, if ever. A year ago, when he entered into the Memorandum
of Understanding with the Senecas, the Governor’s own press release, dated
June 20, 2001 forecast that the Niagara Falls Casino would he open by
April, 2002. The same press release forecast
an opening date for a casino in Buffalo by the end of 2002.
It appears that
these optimistic forecasts were based in part on the notion that the Governor
and the Tribe would obtain an expedited review of the casino applications
with the Federal Government under the so-called Seneca Nation Settlement
Act of 1990, codified at 25 U.S.C. § 1774 et seq. This
legislation - enacted to implement the settlement of the land claim by
the Senecas for territory in and around the City of Salamanca. The law
provided, in pertinent part, that the proceeds from the funds appropriated
to settle that land claim could also be used by the Senecas to purchase
certain additional land within its aboriginal area or in near proximity
to former reservation kind, which would then, in effect, become Indian
land. (See 25 U.S.C. § 1774 f (c).)
This, in turn, would eliminate the need for elaborate and lengthy review
by the Federal Government of proposed Indian casinos at “off reservation”
sites on what is commonly referred to as “land into trust” property. This
is property that is not Indian land that is nevertheless purchased by
the Secretary of the Interior for the benefit of a tribe. Casino gaming
on such property can occur only in accordance with elaborate review procedures
set forth in federal law and regulation. (See 25 USC § 2719 and 25 C.F.R.
Part 151. See a/so National Environmental Policy Act, 42
U.S.C. §4321 et seq. and 40 C.F.R. Parts 1500-1508.)
These extensive reviews are required because “land into trust property”
is not considered original Indian land and federal law and regulations
therefore require elaborate environmental assessments to determine the
impact upon the surrounding community of any such operation. This elaborate
review prolongs any approval, and would make the projected opening dates
for casinos even more unlikely than they already are.
Unfortunately, for the Governor
and the Senecas, a recent (June 21, 2002) decision by the U.S. District
Court in the Western District of New York, Seneca Nation
of Indians v. State of New York, casts considerable
doubt on whether the Governor and/or the Senecas will be able to obtain
the expedited review they had hoped for under the Seneca Nation Settlement
Act. Judge Richard Arcara rejected a land
claim that the Senecas had filed with respect to Grand Island on the Niagara
River, not far from Niagara Falls. In an opinion, over 200 pages in length
that spanned more than 300 years of history, he ruled that the “Seneca
Nation’s ancestral lands were located in the Genesee Valley, not in the
Niagara Region and certainly not on the Niagara Islands.” As a result,
there is no basis for invoking the expedited review process that would
be available under the Seneca Nation Settlement Act to citable the Governor
and the Tribe to bypass the environmental assessments and other elaborate
reviews which are necessary for “land into trust” arrangements. If the
Judge’s decision holds up, it is clear that this land would not qualify
as aboriginal land, and any federal approval, if it ever comes, is a
long way down the road.
Conclusion
There are, therefore, obviously
a number of serious questions which need to be asked immediately by responsible
individuals before the State and the Cities of Niagara Falls and Buffalo
have traveled too far down the “Casino Road” in the hopes of finding a
pot of gold at the end. Unfortunately, unless they immediately reassess
the situation, they may hit a brick wall instead.
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